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PayPal Clarifies Policies as Crowdfunding Comes to Ecommerce

Woot’s founder has done it, Etsy welcomes its sellers to do it, and the owners of a historic Scottish traditional-weaving mill is doing it. We’re talking about crowdfunding and it’s all the rage, so much so that PayPal has posted a clarification of its policies around these practices, explaining how it uses payment holds as protection in some cases.

When we wrote about Kickstarter in 2012, such crowdfunding activities were still the domain of geeky, start-up projects – but online sellers are now discovering they can use crowdfunding platforms to raise money to invest in new equipment, fund new product lines and other types of projects to grow their businesses.

Just last month, Etsy seized on the trend’s incursion into the in ecommerce space by launching Fund on Etsy, a crowdfunding venture of its own that lets sellers raise money with a Kickstarter-like model. Etsy started the pilot program, available only in the U.S., on June 16, and it will run through August 15th.

Nick Fiddes owns and runs Scotweb, a Scottish mill that produces premium quality accessories for celebrity clients and for high end brands to sell under their own labels. He’s turned to crowdfunding, and told EcommerceBytes he’s launching an “accessible luxury” label called CLAN (clan.com) “to supply the same kind of premium product direct for much less.”

He’s designed a Kickstarter campaign to fund the project. In keeping with the format of crowdfunding campaigns, he set it up so that the more a funder pledges, the more they receive. In this case, the highest pledge amount (699 pounds) nets the funder ten cashmere scarves, while a pledge of one pound nets the funder “our eternal thanks, and registration on our Friends list who we’ll keep in touch with any further incredible offers like this!”

Fiddes’s Kickstarter project to launch the new brand will only be funded if at least 25,000 pounds is pledged by July 30.

Not surprisingly, PayPal is in the thick of the crowdfunding craze as a way for funders to pay their contribution in cases where a project raises enough money. In a long post on the PayPal blog, the company explains the difference between crowdfunding and preselling and specifies the responsibilities merchants and entrepreneurs have when collecting funds for their projects.

“We collaborate with several crowdfunding platforms, such as Indiegogo and Fundrazer, to offer entrepreneurs the option of raising money from the public,” PayPal stated. “Our policy with businesses and campaign owners on these crowdfunding platforms is that sellers get a quick release of the funds raised as long as they put a clear disclaim about the risks for buyers.”

However, it explained that when sellers choose to presell merchandise independently of such platforms, PayPal takes certain steps “to help protect its customers as well as itself.”

When a business presells merchandise more than 30 days in advance, PayPal may hold a percentage of the seller’s funds to help ensure that buyers receive the product or service they paid for within the agreed timeline, or a get a refund if the product isn’t available. “That being said, we understand that a seller may need additional funding to run its business or make a product, so we will work with sellers on a case-by-case basis to release additional funds. All a seller needs to do is contact customer service and provide proof – such as pay stubs for employees or invoices for suppliers.”

So if the crowdfunding bug as caught you, be sure to check the policies of the online payment services you use to collect the funds.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). She is a member of the Online News Association (Sep 2005 - present) and Investigative Reporters and Editors (Mar 2006 - present). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.